A second judgement of the UK High Court, issued this morning by Justice Andrew Smith, has condemned Sovcomflot and dismissed a second round of claims, which the state-owned Russian shipping company argued over three days of hearings last month.

The new ruling, issued in two parts, vindicates for the second time Dmitry Skarga, chief executive of Sovcomflot before he was ousted by Sergei Frank in 2004; and Tagir Izmailov, chief executive of Novorossiysk Shipping Company (Novoship), who was forced out of his post by Frank, as Sovcomflot moved to take over Novoship in 2006.
Justice Smith has also dismissed Sovcomflot’s application to take the judgements against the company to the UK Court of Appeal. “I consider that none of the proposed appeals stands a real prospect of success, and there is no other compelling reason for an appeal to be heard,” today’s ruling says. Lawyers familiar with UK jurisprudence say it is now practically impossible for Sovcomflot to avoid the condemnation it has received for waging the 6-year long case.

The money Sovcomflot will have to pay out in compensation for its defeat is estimated from testimony already given in court to include at least ₤15 million in legal costs owed to Skarga and Izmaylov. Izmaylov has been awarded an indemnity by the judge because the case against him was a frame-up.

Sovcomflot has also been ordered to cover its own costs; these amount to at least ₤37 million.

The court’s award of partial compensation against Yury Nikitin, the former vessel chartering partner of Sovcomflot – about $30 million in favour of Sovcomflot – is dwarfed by a separate action by Nikitin to recover $150 million plus interest (about $180 million in all) in compensation for the freeze order Sovcomflot has enforced over Nikitin’s assets since 2005. No ruling on that claim has been made yet. Sovcomflot’s liability for its defeat in London now stands at more than a quarter of a billion dollars.

The financial damage sustained by Sovcomflot doesn’t approach the impact on the company’s reputation in the sale of its bonds and shares inflicted by today’s ruling by Justice Smith.

Frank, once a federal government minister of transport, is condemned by the new ruling as “dishonest”. The new High Court ruling goes further than the one issued last December. It not only dismisses the fresh claims by the shipping company, but leads to the conclusion that much of the 6-year lawsuit was a conspiracy, led by Frank, to present the court with false and misleading claims, corruptly contrived.

“Mr. Frank””, reports the judge today, “…[was] largely responsible for the conduct of the Fiona [Sovcomflot] actions on behalf of the claimants, [and] was, as I concluded in the main judgment, dishonest… he dishonestly supported Mr Borisenko’s untruthful account about Mr Skarga being party to bribing him… without any significant exception the claimants’ witness statements were shown to be misleading. I could not rely upon the statements even of honest witnesses because their oral evidence departed so far from them. I do not accept that they ever gave the witnesses’ real account of events… The claimants [Sovcomflot] made and pursued allegations that were obviously unsustainable when proper disclosure was eventually made, often during the trial… The key witnesses called by the claimants gave dishonest evidence, in particular Mr. Borisenko and Mr. Privalov in the Fiona actions and Mr. Oskirko and Mr. Privalov in the Intrigue action. I consider it relevant that the claimants’ primary contentions of corrupt conspiracies were pursued almost entirely on the basis of dishonest evidence. Further… many specific allegations that had been pleaded and relied upon in the claimants’ opening submissions were either not developed or not supported by evidence that survived cross-examination.”

In February, Rupert Earle, a London lawyer engaged by Frank to threaten media coverage of the High Court rulings against Sovcomflot, claimed it was the boards of the Sovcomflot group of companies, not Frank, who pursued the litigation. Today’s ruling gives the lie to that claim. Earle was asked to comment on the ruling, but he has refused to do so. In a telephone interview, Earle was asked if he had participated willingly in Frank’s effort to prevent accurate reporting of the court evidence and the judgement of Frank’s dishonesty. Earle replied: “I have no confidence in the accuracy of anything you report.”

At Frank’s office in Moscow, his official spokesman Andrei Kechashin declined to return calls or respond to a request for comment on the UK ruling. The London public relations firm of Waughton is retained to speak for Sovcomflot. The spokesman for Sovcomflot there asked for time to gather Frank’s response, although the latter was informed by his London counsel of the ruling some time ago.

Even before Justice Smith ruled against him this morning, Frank was already facing replacement, according to Moscow sources familiar with the matter. If Deputy Prime Minister Igor Sechin who supervises the maritime sector, and Deputy Prime Minister Sergei Naryshkin, the Kremlin chief of staff and chairman of the Sovcomflot board, reach the same conclusion as Justice Smith – that Frank was “largely responsible for the conduct of the Fiona actions on behalf of the claimants” – his ouster may be inevitable.

The Moscow sources familiar with the matter say there are several candidates now under consideration for the Sovcomflot post. No official announcement has been made by the company, and a company source declined to say anything on the issue. Off the record, the source provided neither confirmation nor denial that Frank’s tenure is being reviewed. .

Justice Smith ruled on Skarga, saying: “In very broad terms, on the central issues I preferred Mr. Skarga’s account to the generally dishonest evidence given by many of the claimants’ witnesses, including in particular Mr. Privalov and Mr. Borisenko. ..I conclude that Mr. Skarga is entitled to an order that the claimants pay his costs. Having regard in particular to his conduct and the issues upon which he did not succeed, I am not persuaded that he should recover only part of them. That would not be just, especially in view of the scale of the allegations and claims against him and the dishonesty associated with the claimants [Sovcomflot] to which I have already referred… the litigation was pursued on the basis of dishonest evidence, including dishonesty on the part of Mr. Frank…Allegations were made against Mr. Skarga which were not pursued when proper disclosure was given:”

The judge ruled on Izmaylov, saying his “costs should be assessed upon the indemnity basis. His case is to be distinguished from that of Mr Skarga because Mr Izmaylov had done nothing that could reasonably have excited the claimants’ submissions about his integrity, because many of the allegations against him were, to my mind, always particularly thin and because his evidence was honest.”

Regarding Frank’s case against Nikitin, the latest ruling upholds the December judgement that Nikitin is liable to pay Sovcomflot for a minority of the claims, worth an estimated $30 million (Nikitin’s estimate) to $60 million (Sovcomflot’s). The text of today’s ruling says: “The claimants [Sovcomflot] lost their claims based upon their central allegation in the Fiona actions of dishonest collusion between Mr. Nikitin and Mr. Skarga and in the Intrigue action of dishonest collusion between Mr. Nikitin and Mr. Izmaylov, and that, it is said, was always their real and primary case. They succeeded upon a secondary and discrete claim against Mr Nikitin and two of the Standard Maritime defendants that they were party to “skimming” commissions through the London broking market.”

On February 24, Frank’s London agent, Nicholas Fairfax, claimed in a letter published in Fairplay, the international maritime journal, that “the sums that SCF Group will recover from Mr Nikitin are likely to be almost double (with the interest) the $32M mentioned in the article and suggested by Mr Nikitin””. The latest ruling appears to provide the court’s endorsement of Nikitin’s calculation, not Fairfax’s. “The defendants [Nikitin, Skarga, and Izmaylov] defeated entirely the claims relating to these schemes: the RCB claim, the SLB arrangements scheme, the termination of the SLB arrangements scheme, the newbuildings scheme, the Sovcomflot time charters scheme, the Sawyer commissions scheme, the NSC time charters scheme and the “Romea Champion” commission scheme. The claimants were successful in respect of the Sovcomflot Clarkson commissions scheme, the Tam commissions schemes, the hull no 1231 commission scheme, the Norstar commissions scheme, the NSC Clarkson commissions scheme and the Galbraith’s commissions scheme. One measure of the claimants’ success is that, as Mr Berry [Nikitin’s advocate] observed, in the Fiona actions the claimants recovered something less than 5% of the amounts that they claimed and in the Intrigue action the claimants recovered some 12% of their total claims. As I have said, where the claimants succeeded in respect of a scheme, they did so only on their secondary case: I rejected in respect of all the schemes their primary allegations that Mr. Skarga and Mr. Izmaylov were involved in collusion. ”

“Balancing these considerations,” Justice Smith went on, “I conclude that I should not order any payment of costs as between the claimants [Sovcomflot] on the one hand and Mr. Nikitin and the Standard Maritime Defendants on the other hand. They should all bear their own costs. This involves a major departure from the general rule, but I consider that it is justified particularly (i) because the claimants failed in their primary case, and (ii) because of the conduct of the claimants before and during the proceedings.”

There is no corroboration for the rumoured front-runner to replace Frank at Sovcomflot — Igor Tonkovidov, who has been chief executive of Novorossiysk Shipping Company (Novoship) since June of 2009. Tonkovidov, 47, is a veteran of the Russian shipping industry, with an advanced degree in financial management from the University of London.

Tonkovidov is believed to be close to the government services which have been following the disclosures of the High Court case. For some time now, they have been reportedly reluctant to back the plan of privatization and initial public offering (IPO) which Frank has led, backed by Morgan Stanley, JP Morgan, and Deutsche Bank.